Apparel, textiles outsourcing to Ukraine

An Expert's View about Labor Costs in Ukraine

Last updated: 26 Jan 2011

In today’s global economy, all companies try and cut costs wherever they can. One way to do this is by making better sourcing and distribution decisions. Garment and textiles production outsourcing to Ukraine enables quickly and effectively optimize costs, because production of apparel moves to countries offering lower expenses.

When Ukraine was part of the USSR, the country was a key player in the Soviet economy, accounting for major portion of the Soviet Union's textile, apparel, clothing and fashion production. After collapse of the USSR, many garment industry factories went bankrupt, but even now for about 2.000 small and medium enterprises, which produce clothes for children, men’s and women’s (primarily pants, trousers, skirts, jackets, dresses, blouses, shirts, T-shirts, socks, sportswear, top garment, underwear, bras, lady’s sexy lingerie, etc) as well as textiles (kitchen & table linens, table cloths, napkins, towels, home decor, home textile, curtains, carpets, bedding, blankets, pillows, bath linen) still operate all across Ukraine.

Majority of Ukraine’s textile and apparel producers work under toll manufacturing schemes, which enable them load production capacities to full extent. Over the past several years many leading foreign companies outsource to Ukraine, since the workforce is low-cost and qualified. Mostly light industry companies from the European Union take advantage of apparel & textiles outsourcing to Ukraine, which saves them a great deal of time and money. Presently, apparel toll processing in Ukraine is even more lucrative than in Bulgaria, which plays the leading role in the European production of textiles and clothing. Accordingly, almost all well-known brands outsource to Ukraine.

The Ukraine's toll manufacturing undisputable strengths and advantages comparing to other countries are as follows:

- An educated, skilled, flexible and highly qualified Ukrainian workforce is lower in cost comparing to European countries, which makes the price for finished products very competitive;

- No import taxes and duties (imported tolling raw materials and ready textiles and clothing made therefrom are exempt from any and all import taxes and duties);

- Ukraine benefits from cheap imported Russian gas (a discount in the amount of approx. EUR 100-130 is granted to Ukraine comparing to other European countries) as well as being a net-exporter of electricity to Eastern Europe, it takes advantage of cheap electricity, which are critical energy sources for maintaining manufacturing competitiveness;

- Innovative, competitive, cutting edge research, technologies and production process;

- Business development policies of Ukrainian government include substantial tax reductions (according to newly-adopted tax code of Ukraine, the light industry enterprises are totally exempt of corporate profit tax, which is 25%) and other incentives, which in turn make the price better for foreign clients;

- Extremely favourable & strategic geographical location (between Europe and Asia, North and South Europe) and proximity to the EU market makes Ukraine closer to the European clients, which enables substantially cut transportation and logistics costs and delivery time comparing to China and India;

- Abundant source of high-quality raw materials for uninterrupted and smooth production;

- Ukraine has extensive well-developed infrastructure (transportation, communications, storage facilities, Internet, etc);

- Possibility to process small- (typical for some exclusive fashionable collections, which are not possible in China or India, because transport expenses and slow delivery shall "eat" all the benefits), medium- and large quantity orders;

- A member of the WTO, Ukraine has a competitive, free-market economy. Today Ukraine is one of the world’s competitive & emerging markets and experts believe that in years to come its economy will be among the strongest in the whole CIS and Eastern Europe region;

- Modern and up-to-date legislation in line with the EU acquis communitaire and many other advantages. In addition, Ukraine is the country with great number of free trade agreements.

Importantly, the EU and Ukraine shall be linked by a comprehensive Free Trade Agreement (FTA) since 2011, under which all custom duties and almost all non-tariff barriers to trade shall be eliminated. This makes Ukraine even more attractive destination for apparel outsourcing and FDIs in the future.

Textiles and clothing processing services on behalf of a third party is definitely a win-win situation for both the European brand owners and Ukrainian producers. Accordingly, a great synergy effect is achieved!

Thus, if you want substantially reduce your production costs and be ahead of your competitors, consider using apparel and textiles tolling transactions in Ukraine

Copyright. Marketplace UkrRos LLC

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Posted: 15 January 2011, last updated 26 January 2011

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